Thursday, January 01, 2009

This New Year’s, resolve to fight pessimism

It’s the start of a new year, a time when most of us are hopeful about what the future will bring.

Unfortunately, that hope tends to fade quickly, and not only in tough times. Even though America is the “land of opportunity,” most Americans — in fact, most people everywhere — are pessimistic about the long run.

That is the bad news. The good news is our pessimism is unfounded.

Bryan Caplan, a professor of economics at George Mason University in Virginia, calls this “pessimistic bias.” It is one of four biases he cites in his 2007 book, “The Myth of the Rational Voter,” as leading to bad public policy.

Caplan shows that people are generally too pessimistic about long-term economic trends. In short, they believe things are bad when they’re actually good, and they believe things are worse when they’re merely bad. This is despite overwhelming evidence that, in the long run, economic conditions are improving overall.

Long-run improvement wasn’t always the case. Throughout most of history, living conditions barely improved at all.

In his recent book “A Farewell to Alms,” Gregory Clark, chairman of the economics department at the University of California, Davis, writes that for most of the last 100,000 years, living conditions stayed the same — awful. Even with improvements in technology, the arts and science, people ate poorly and died young. Short-term improvements in living standards led to larger populations that then overwhelmed available resources, causing living standards to drop. Over the long run, life for the vast majority of people remained nasty, brutish and short.

But in 1800, all of that changed. The Industrial Revolution made long-run improvements in living standards possible, at least in countries that had an industrial revolution. In the 21st century, we’re reaping the benefits of more than 200 years of economic growth.

Still, the pessimistic bias remains, with many people and interest groups predicting the End of the World is just around the corner. Professional pessimists still cite books written in the early 1970s that predicted a worldwide economic collapse by the 1990s. Even the current recession isn’t that bad.

With the U.S. and most of the rest of the industrialized world in a recession, some measure of short-term pessimism is understandable. But as a whole, we’re almost always more pessimistic than we should be, whatever the economic conditions.

Yet, while the bias toward economic pessimism is important — especially if, as Caplan argues, it leads to voters voting irrationally — it’s not our only pessimistic bias.

Various studies have found that people overestimate their cancer risk, think divorce rates are increasing when the opposite is true and greatly overestimate the threat of terrorist attacks following 9/11. Pessimistic bias is everywhere.

French researchers have found that people are most pessimistic when they think they have no control over a situation. Thus, many have a pessimistic bias against airplane travel, even though flying is far safer than being behind the wheel of a car.

Caplan’s George Mason colleague Tyler Cowen devotes a chapter of his 1998 book, “In Praise of Commercial Culture,” to cultural pessimism, the belief that art, music and culture as a whole are always getting worse.

“The later we stand in history, the more likely that our favorite cultural products will lie in the relatively distant past,” he writes. “The passage of time implies that the entirety of the past contains an increasing amount of culture relative to any single point in time, such as the present. Cultural pessimism therefore appears increasingly persuasive over time.”

Persuasive? Yes. But not justified, as Cowen shows.

So, this New Year’s Day, resolve to hang on to that optimism you’re feeling. Even when everything around you seems to be falling apart, chances are at least some of that pessimism that taunts you is just in your head.

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